donald trump and the plaza hotel -- 10/18/19
Today's selection -- from The Plaza by Julie Satow. Donald Trump and the Plaza Hotel:
"In the fog of 1980s excess, Trump had built up his sprawling, debt-laden empire. As the dawn of the 1990s broke, however, the haze cleared, and the economic realities came into view. There was a recession, the real estate market had collapsed, and Wall Street was reeling from the savings and loan crisis. Trump had overpaid and overborrowed in the expectation that his assets would continue appreciating and he could easily cover his debts. But that didn't happen.
"Trump owed his lenders several billion dollars, nearly $1 billion of which he had personally guaranteed. This meant that his personal assets, and not just his business assets, could be seized by creditors. One day, Trump was strolling down Fifth Avenue with Marla when he passed by a homeless person. 'You see that man?' he asked her. 'Right now he's worth $900 million more than me ... Right now I'm worth minus $900 million.'
"Trump's situation became increasingly dire. In 1991, his Taj Mahal casino in Atlantic City, billed as the 'Eighth Wonder of the World,' was nearly $3 billion in debt and filed for bankruptcy protection. It would be the first of what would eventually amount to six corporate bankruptcies. As he watched his empire and his marriage collapse, Trump retreated to his own apartment in Trump Tower, taking refuge in food, ordering in hamburgers and French fries from the deli downstairs. When a friend commented that he was acting like the reclusive Howard Hughes, he replied, 'Thanks, I admire him.' In the end, Trump would lose his 282-foot yacht; his private jet; his Trump Shuttle airline; his stake in the Grand Hyatt New York; and his Mona Lisa, the Plaza.
"In the first few years that Trump owned the Plaza, the hotel benefited from rising room prices and occupancy rates, as well as a booming banquet business, thanks in part to the Trumps' highprofile celebrity friends. But despite its performance, the underlying financials were shaky. Trump had acquired the Plaza at a market peak, using borrowed funds. He had then saddled the hotel with even more loans, leveraging it to buy an airline and fund construction of his Taj Mahal casino. No matter how much the Plaza made, how many weddings, debutante balls, or bar mitzvahs it hosted, it would never be sufficient to service the debt.
"In 1990, the hotel's total accrued debt service was about $41 million, while the hotel's cash was just $21 million -- a major shortfall. In 1991, it was even worse, with a $42 million debt service and cash of $17.6 million.' At the same time, Ivana was a profligate spender and blew way past her budget on her many hotel improvements. In fact, as a result of her costly renovations, in one year the Plaza spent a staggering $74 million more than it earned. In the summer of 1990, Trump's lenders agreed to let him defer his interest payments and extend the maturity dates on his loans. But by late 1991, it became obvious that no matter what allowances the bank gave him, Trump could never cover his Plaza debts.
"Trump, concerned he would lose the hotel, threw out a possible lifeline. When he had first bought the Plaza, he intended to carve out the building's upper floors into more than a dozen exclusive penthouse apartments, even going so far as to get city approvals for his plan. But not long after Trump closed on the hotel, he grew distracted with his personal life, his Atlantic City casinos, and other Trump-branded ventures. The penthouse plans were put aside.
"Now, he tried reviving them.
|Donald Trump greets Robert Small, CEO of Fairmont Hotel Management, at a ceremony at the Plaza Hotel in 1995. The ceremony marked Trump's sale of the hotel to Saudi Arabia and Singapore.|
"The Plaza's upper floors didn't look like penthouse material.
"They had once been the former maids' quarters and were now a warren of small offices and storage rooms. 'The seventeenth floor was kind of half empty,' Lee Harris Pomeroy, an architect whose offices were there, told me. Pomeroy's conference room, for example, had bathroom tiles along one wall, a throwback from when it had been the maids' shower. These floors were also often used as gathering spots for the prostitutes who hung around the hotel. 'We had a couple of public bathrooms on my floor, and there were the prostitutes in the community. They would hang out downstairs in the lobby, but they needed to change their clothes or do whatever they do, so they would come up to the top floor,' Pomeroy recalled. To try to dissuade the prostitutes from congregating up there, the hotel removed chairs and other lounge furniture from the hallways so there would be no place for them to sit.
"Trump was hoping that the penthouse concept, his last-ditch effort to save the hotel from bankruptcy, could generate massive profits. (He was right. Trump's penthouse plan would eventually be realized -- years later, without him -- generating $1 billion for the Plaza's then-owners.) Trump hired Pomeroy to execute the designs for his penthouses, and the architect began creating plans. The idea was to convert the seventeenth and eighteenth floors into fourteen ultraexpensive apartments. The ungainly rooftop, which was covered with water ranks and paint sheds made of corrugated metal and chicken wire, would also be cleaned up and become a part of the design. But there were several problems standing in Trump's way, and one of the most challenging presented itself in the shape of a diminutive old lady.
"Fannie Lowenstein was one of just a handful of the thirty-nine widows of the Plaza who were still alive. Lowenstein had arrived in 1958, as a young divorcee, and she soon met a fellow hotel resident who became her second husband. Not only did Mr. Lowenstein have a seat on the New York Stock Exchange, but even better, he had a rent-controlled Plaza apartment, one of the lucky few whose rent was frozen in the wake of price controls instituted during World War II. When her husband died, Lowenstein continued to live in splendor in their three-room suite. It would have typically rented for more than $1,250 a night, but Lowenstein paid just $800 a month.
"In addition to her fortunate apartment setup, the Plaza staff treated Lowenstein, who was infamous for her tantrums, with deference. 'Fannie Lowenstein entered the Palm Court of the Plaza Hotel as the orchestra was playing,' reported the Village Voice. The maitre d' ushered her to her favorite table, the waitress took her regular order of asparagus soup and a Hennessy cognac, and then the violinist came over, offering to play 'her"'song. 'As the crystal chandeliers shimmered and the palm leaves rustled,' the musician began playing the theme song from the Broadway musical Fanny.
"Trump was defenseless against Lowenstein, unable to evict her or raise her rent beyond small annual increments. When Trump had first bought the building, Lowenstein told an inquiring Newsday reporter, 'I get regular service, and I expect that to continue.' And at first, the prickly widow seemed content. But the honeymoon was shore-lived, and it wasn't long before Trump ran afoul of the demanding doyenne.
"Lowenstein soon began complaining of what she said was 'indoor air pollution' in her rooms. She claimed it was caused by the new owner, alleging that the dirty air made it difficult for her to breathe, shrank her curtains, and caused her Steinway grand piano to grow mold. She began waging a 'guerrilla war' on Trump, calling the city repeatedly to send over 'a battalion' of inspectors, and writing repeated missives to management. 'Ivana and Marla have been a lot to handle,' Trump told the National Enquirer, 'but my relationships with them have been smooth as silk in comparison to my contacts with Fannie Lowenstein. When she's done with me, I'm soaked in sweat!'
"Even if Trump could have evicted Lowenstein and the remaining widows to make way for condominiums, there was another, even more serious problem with his strategy. In 1988, when Trump acquired the Plaza, the real estate market was robust, and selling costly penthouses atop the hotel made financial sense. But now, the recession left few takers for such luxury apartments. In 1991, when Trump returned to his penthouse idea, the median price for a Manhattan condominium was only $280,000. Trump's purported $8 million price tag was a pipe dream.
"Unable to execute on his penthouse plan, Trump was out of options.
"Almost exactly four years after he had purchased his Mona Lisa for a record amount, Trump lost the hotel to his bankers. In a bankruptcy filing that ran almost fifteen hundred pages, reams of unpaid creditors were listed. New York State was asking for more than $800,000 in back sales tax, while Con Edison claimed it was owed nearly $300,000 for electricity. Manhattan Limousine had an outstanding bill of almost $200,000, Projection Video Services was out more than $120,000, and Adas Floral Decorators, Ivana's favorite, was asking for $85,000. In total, the Plaza's assets were listed as $375 million, but its liabilities ran to nearly $480 million.
"The Chapter 11 filing was what is known as a prepackaged bankruptcy. By the time they filed, Trump and his lenders had already hammered out a deal, with Trump agreeing to hand over 49 percent of the Plaza to Citibank and a consortium of other lenders in exchange for easing the terms on his debt. While Trump nominally retained 51 percent of the hotel, it was only on paper, since he had no equity in the deal. 'He had no decision-making authority, and, to the best of my knowledge, he received zero dollars from the transaction. It all went tco the banks,' Alan J. Pomerantz, the former head of the real estate practice at Weil Gotshal & Manges, the law firm that represented Citibank, told me.
"For the Plaza, the bankruptcy was the first in its eighty-five years, and it was a demoralizing blow. 'It was a pretty painful place to work,'" Christopher Knable, the director of guest services at the time, told me. 'We were laying staff off during the holidays, even though we were full.' It was a tricky balancing act. 'With bankruptcy, you are trying to satisfy the bankers, but the hotel still has to run,' said Knable. 'You can strip away the expenses, but the occupancy and the hotel services needs don't change.' Belts were tightened, and Ivana, who had held on even as her dramatic split with Trump played out, was replaced with professional moneymen employed to cut costs and increase revenue.
"Ivana, having loset her perch as president of the Plaza, also stopped battling Trump over the terms of the divorce. It had become abundantly clear that Trump had little wealth left to fight for, so after all the dirt-slinging, Ivana agreed to the basic outline of their 1987 marriage contract. Trump was so embattled that he was living off an allowance doled out by his bankers. How he managed to procure the $10 million cash payout that was stipulated in his nuptial agreement remains a mystery. Trump had asked his bankers for the money, but they demurred.It was rumored that his father, Fred, who had previously stepped in to provide financial backing for his son, was a possible source.
"Despite his drubbing, Trump behaved as he had throughout his business career -- and would continue to do so in the decades hence -- by spinning the defeat into a win. One March morning, Trump stood triumphantly on the seeps of a Manhattan courthouse waving his $10 million check in front of the gathered press. 'I'm here with what I am supposed to give her' he blustered. 'What more does she want?' Ivana was a no-show that day, her lawyers claiming the case was not yet seeded.
"Eventually, Trump did hand the check over to his ex. 'I don't think you have any other real estate developer in the country that can write a $10 million check today in terms of cash,' he bragged."